Monday, September 25, 2017/12:30PM/ Afrinvest Research
Market Last Week (Our Observations)
In line with our expectation, the All Share Index (ASI) gained 1.4% W-o-W to close at 35,488.81 points as investors took position in stocks that previously declined while YTD gain expanded to 32.1%.
The Industrial Goods index led gainers, up 2.9% W-o-W. Similarly, the Banking index rose 2.4% W-o-W while the Insurance index climbed 1.4% W-o-W. On the flip side, the Oil & Gas and Consumer Goods indices were dragged 3.0% and 0.2% lower W-o-W.
The best performing stocks were LINKASSURE (+15.8%), CONTINSURE (+9.8%) and CILEASING (+5.8%) while NEIMETH (-15.8%), CAVERTON (-9.2%) and UNITY (-7.1%) were the worst performers.
Market This Week (Our Expectations)
The Afrinvest weekly sentiment indicator rose to 2.9 points (from 2.5 points last week) on the back of the improvement in market turnover despite a retreat in market breadth.
We expect a mixed but broadly positive performance in the market this week as investors take profit in early trades before a reversal in trend closer to the end of the week.
We believe the positive close will be driven by investors taking position ahead of the Q3:2017 earnings releases as well as end of the month rebalancing of portfolios by fund managers.
Our top pick for the week is ZENITH.
Top Pick for the Week: Zenith Bank Plc
Zenith or the Bank operates an international banking license in Nigeria, and has subsidiaries in Ghana, Sierra Leone, and the Gambia. The bank also has representative offices in South Africa and The Peoples Republic of China and is the largest Nigerian bank by Total Asset of N4.9tn as at H1:2017
The bank has constantly demonstrated its resilience in the Nigerian Banking industry, establishing itself as one of the leading banks. In H1: 2017, Gross Earnings expanded 77.1% Y-o-Y to N380.4bn from N214.8bn in prior year while PAT grew 112.4% to N75.3bn from N35.5bn in prior period and EPS settled at N5.40
The bank has continued to harp on efficiency in terms of cost management and this is reflected in the fact that Cost to Income Ratio (CIR) moderated to 47.7% in H1:2017 from 57.5% in H1:2016 despite the 32.8% jump in OPEX which settled at N122.6bn.
The bank was able to sustain its dividend payment history, declaring a N0.25 interim dividend for H1:2017
The stock currently trades at a P/E and P/BV of 4.3x and 1.0x relative to industry average of 6.8x and 0.9x
The stock currently trades at N22.05 (22/09/2017) and has an RSI of 38.7 which is closer to the oversold region and we have a generally positive outlook on the bank for 2017 as forward earnings projections remain impressive hence we recommend a BUY on the counter.